How do you save for Tax bills?

raptormonkey

raptormonkey

raptormonkey

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Well, how do you guys, self employed, save for tax bills. Do you take a percentage from each payment and save that for the tax bill that is coming up? If so, what percentage?

Do you transfer it into a separate account ready to pay the tax man?

Again, looking for info for my sister-in-law as before! lol

She has been booked onto a course by Inland Revenue but that is a month or so away and she wants to make sure that she puts a bit away every week for tax payments.

Any advice would be welcome. Thanks
 
when i was freelancing (a while back now) I would put 40% away, it covered all my tax and gave me a bonus at the end of the year.
 
I just pay the bill out of my bank account when it arrives. Well i wait till the very last day that its due so i don't lose any interest.
 
i used to be paid weekly while contracting self employed, each week i used my accountants spreadsheet to enter income and expenses, it would then tell me how much i would need to pay in tax from each weeks pay.

that rounded up monthly and quarterly.

quite simple really
 
i have a tax account linked to my bussiness account - put the appropriate percentage in their from each payment received and VAT (although prob not applicable in this case) - at the end of the first year a self assessment will be made and tax paid and payments on account for the next year will be based on this and due every six months. Remember that a payments on account for the first part of year two may be due with the end of year 1 payment making that a biggie (mine was very upsetting.)
 
raptormonkey said:
So 40% put away each week would be more than enough!!

She has registered as 'Small Earnings'. Don't know anything about that but i presume it means less tax paid?
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Its just a grade, business are herded into ring fences such as 'large business' and 'oil's' for back office functions and categorization, it doesn't really mean much.

Tax will accrue on activities, the more activity the more tax really - depending on services.
 
raptormonkey said:
She has registered as 'Small Earnings'. Don't know anything about that but i presume it means less tax paid?
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This suggests she will be earning less than £4,825 (the small earnings limit) in 08/09?
By registering for small earnings exemption she won't pay any class 2 national insurance (£2.30/week).

If she is indeed earning less than £4,825 and has no other earnings then she won't pay any tax so no need to save any.
 
raptormonkey said:
£2.40 is NICII. And she has elected to pay it.

So, she has to put away a percentage off all money coming in or a percentage of the 'Profit' figure for each week?
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Sorry I'm too used to working with 08/09 rates. You're right it's £2.40/week.

If she's paying class 2 NI then she's not claiming small earnings exception?

The most accurate way will be to work out monthly profit, minus 539.58 (1 month of personal allowance), and multiply by 20%. That'll give you the tax amount.

So a monthly profit of £2,000 - 539.58 = 1,460.42 x 20% = £292.08.
There's also class 4 NI to consider: 2,000 - 476.25 (1 month of lower profits limit) = 1,523.75 x 8% = £121.90. Total to save = £413.98 (20.7% of profit).

If she making more than £43,875 profit then she's into higher rate so things are slightly different.

Hope that helps!
 
Transfer the amount i receive from each invoice to my HSBC business money manager account (was 2% interest before rates fell through the floor) following the guidance of my accountants advice slips I get the day after each invoice I raise. That tells me the PAYE NI, Corp and VAT to stick away with the rest directors fee, any expenses and the bulk of it dividend.

Anything you take yourself and do personally ontop of what ive described above will be a directors loan which the HMRC take interest in. Thats something to avoid in my industry due to IR35 legislations.
 
Jonnycoupe said:
Transfer the amount i receive from each invoice to my HSBC business money manager account (was 2% interest before rates fell through the floor) following the guidance of my accountants advice slips I get the day after each invoice I raise. That tells me the PAYE NI, Corp and VAT to stick away with the rest directors fee, any expenses and the bulk of it dividend.

Anything you take yourself and do personally ontop of what ive described above will be a directors loan which the HMRC take interest in. Thats something to avoid in my industry due to IR35 legislations.
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lol. You might have well as spoken in german!! :D
 
Guv said:
Sorry I'm too used to working with 08/09 rates. You're right it's £2.40/week.

If she's paying class 2 NI then she's not claiming small earnings exception?

The most accurate way will be to work out monthly profit, minus 539.58 (1 month of personal allowance), and multiply by 20%. That'll give you the tax amount.

So a monthly profit of £2,000 - 539.58 = 1,460.42 x 20% = £292.08.
There's also class 4 NI to consider: 2,000 - 476.25 (1 month of lower profits limit) = 1,523.75 x 8% = £121.90. Total to save = £413.98 (20.7% of profit).

If she making more than £43,875 profit then she's into higher rate so things are slightly different.

Hope that helps!
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She has elected to pay £2.40 NicII.

What if she earns less than £539.58 a month?

Just spoke to her and she said she is using a book called 'Best Small Business Accounts Book'

Last week her profits, after only having a few jobs, paying for advertising was £2.35!!!!!! Waw, that's not much is it?!

Should she contact them and tell them to stop the NICII payments?
 
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Class 2 is taken by DD from my account each month.
Class 4 I make in conjunction with my income tax paymenst twice a year in Jan and July.

I have a saving account linked to my current account, each month I transfer 1/3rd of the gross income to the tax savings account. Then when Jan or July rolls around swap the amount back into the current account and Switch the payment to inland revenue. 1/3rd a month just about covers the taxbill and the additional NI contributions.

Stings, but I look on that account as containing money that was never mine in the first place, it always belonged to the scroungers and ******* who'll never work :)
 
It all depends what you earn and what expenses you can claim but in general if you put a third away you won't be far wrong assuming you are a 40% tax payer.

In my boss's case he only needs to tuck 21% away (i'm a very,very good accountant ;)) my gf only needs to put 30% away but it varies.

Better to put too much away and have a surplus bonus than be scrabbling around for the payment.
 
I'm going to end up self employed, so this is interesting. I will be working as a locum pharmacist hopefully, and this should be good. ^^

I plan to put awat a certain percentage of my earnings every mont into a seperate account to pay the tax man.
 
I owe the taxman 6 grand :( 2 years worth of tax in one go, thanks for the "help" with starting up a business mr taxman. I had saved around £200 a month towards tax, but the credit crunch really hit our industry (building services) hard and had to spend it all to survive as no-one was paying my company and i couldnt pay myself as a result. Still havent received a letter demanding payment though. :)
 
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